Goal Setting

I recently started reviewing some of the things I learned from my Personal Finance class at Snow College. The following tidbits come from my textbook from the class.

"If you don't know where you're going, you might end up somewhere else and not even know it."

--Goal setting is central to financial decision making

Financial goals should be:

1. Realistic . . . don't set goals that you cannot achieve with your income and life situation.

2. Specific and measurable . . .Having specific, measurable goals helps us create a plan to acheive the goals.

3. Have a time frame. . . This helps us avoid procrastination in working toward the goals.

4. Indicate the type of Action to be taken . . . Without action Goal setting is of no use.

1 in 84 homes in America have received . . .

On a recent conference call at work we heard a crazy statistic.

-1 in 84 homes in America have received a forclosure notice.

What? Why so many?

First off, why are so many homes in foreclosure? Some homebuyers stretched themselves too thin. Others didn't understand the terms of the Mortgage they signed (you mean I'm supposed to read and understand the legal contract I enter into?). Many homeowners don't think about property tax increases, homeowners insurance rate hikes, repair and maintenance costs. The last broad category I want to include is those that were hit so hard by declining home values that they owe more than the home is worth.

While thinking of homeownership as an investment is good, it is vital that the borrower does their due diligence. My brother-in-law spoke of going through the "worst case scenario" before making their home purchase. I believe that too many people only go through the "best case scenario" and forget that life doesn't always turn out how exactly as planned.

Don't let the loan officer convince you to borrow the maximum amount you can qualify for. That is why so many people are upside down in their mortgages. Borrowing less than you could afford will allow you to still enjoy life with the extra cash flow.

My point is not to scare anyone out of buying a house. I only hope that more Americans, including myself, will truly seek to understand what costs are associated with buying a home before the purchase is made.

Prepare for the future

This morning I had a bit of a paradigm shift. Some financial experts seem to focus a lot on building wealth. Although that focus can be a good one, my mind shifted a bit on how I want to look at it.

Instead of focusing on a desire to be wealthy I believe that it is better to focus on being prepared financially for the future. Being prepared financially truly is a key to the future.

I want to be prepared for. . . when the car breaks down. . . . buying our 1st house . . . . going on regular dates with my wife. . . . taking vacactions . . . . furthering my education and learning. . . . unexpected illness . . . .retirement . . missions. . . charitable goals. . . etc.

So, some great preparedness questions to ask oneself are:

"What do I need to be financially preparing for?"

"How am I going to be financially prepared for . . . .?"

"What should I be doing differently to be better prepared for . . . ?

My favorite line from the Disney Movie, The Lion King, is "Be Prepared!"

APR vs APY

You might hear APR or APY everyday on TV, the radio, or even the internet. I did a little reading on investopedia.com and here are some interesting findings to help the average consumer.

What is the difference between apr and apy?

APR=Annual percentage rate
APY=Annual percentage yield
A big difference in these two rates is the use of compounding interest.
APR is a basic rate that doesn't use the compounding effect while APY does use this compounding effect.
APR = Periodic rate X number of periods
APY = (1+periodic rate)^number of periods - 1
For example, a credit card company might charge 1%interest each month; therefore the APR would equal 12% (1% x 12 months = 12%). This differs from APY, which takes into account compound interest. The APY for a 1% rate of interest compounded monthly would be [(1 + 0.01)^12 – 1= 12.68%] 12.68% a year. If you only carry a balance on your credit card for one month's period you will be charged the equivalent yearly rate of 12%. However if you carry that balance for the year, your effective interest rate becomes 12.68% as a result of the compounding each month.
So, banks will quote the apr when they are trying to lend money because it doesn't take into account the extra money they will make off you because their interest isn't compounded annually. It is generally compounded quarterly or monthly. so if a bank quotes a rate of 9% apr and the loan compounds monthly then you are really getting charged 9.38% a year. That .38% accounts for a lot of money if your loan is large.

On the other hand, banks are going to quote the apy when they are trying to get you to put your savings with them. They are going to quote the highest rate possible. We will get the "higher" rate assuming we let the interest we earned start earning more interest.

Include the Entertainment category in your budget

What is the use of have a meticulous budget if you don't get to have some fun too?  No matter how big or small, I feel it is important to have an entertainment category in the budget.  We are looking forward to our family trip to Yosemite, San Francisco, and Modesto.  The blessing of a budget is helping us afford it.

The entertainment category is great to have when siblings want to head to a sporting event, musical, or the movies.  This is great when you just want to go get some ice cream.  The only down side to the entertainment category of the budget is there has to be a limit. 

Enjoy the journey.  Make some memories.  Have fun!

Sacrifice

This week Janell and I made a sacrifice that will hopefully help us with our goals for the coming year. We had been paying quite the premium for our cable/internet bundle after the introductory period expired a couple of months ago. Now that Janell is done with her Bachelors degree (Congrats Janelly!!!) we have decided to go with basic cable and basic internet. The switch happens Monday. So, now we will have to deal with the much slower speeds while online.

I guess the point here is that reaching our goals takes sacrifice. We must give up something we have or want to get something better. In business, opportunity cost is what you give up to get something different. We must decide if what we are sacrificing is worth more than what we are getting for the sacrifice or not. The answer is subjective and thus it is different for everyone.

Hopefully we are sacrificing the right things for that which will last. Giving our time, talents, and money is worth the reward of a strengthened relationships with family and friends.

Commitment

In the book, "How Successful People. . . Keep their lives out of the toilet" by Sandra Phillips and Don Aslett, I learned a new way of thinking about commitment.  Commitment is the "I will . . ." attitude.  This differs from I wonder. . ., I wish . . ., I will try. . . ., I'll see what I can do . . ., I will do it as soon as . . .Instead of just having an intention to do something great we must make the commitment to do so.  "Yes. I will."  "I promise."

According to Yoda, "Do or Do not. There is no Try."  After the commitment is made there must be followthrough.  Distractions, detours, and temptations will certainly follow the making of  a commitment.  If we are truly commited then we will not falter from achieving what we said we would do.  

Stick to your task till it sticks to you; 
Beginners are many, but enders are few. 
Honour, power, place, and praise 
Will come, in time, to the one who stays. 

Stick to your task till it stick to you;
Bend at it, sweat at it, smile at it too; 
For out of the bend and the sweat and the smile 
Will come life's victories, after awhile. 
-Anonymous